Google Acquires Nest Labs for $3.2B

SAN FRANCISCO — Let the battle begin over the so-called “conscious home” -- a long-term vision held by Nest Lab’s co-founder Tony Fadell. Now that Google is inserting itself into that "home" picture, through the acquisition of Nest, a smart thermostat and smoke alarm developer, expect the market segment to heat up.

It was at CES Unveiled -- a pre-show gadget-fest at the International CES -- in 2012, where Nest stole the show.

The pedigree of Fadell (who developed Apple’s music player iPod) as the startup’s co-founder, the sleek thermostat design, and the fact that the lowly thermostat came with an iPhone app from day one on the product rollout fascinated everyone.

Two years later, right after the 2014 CES, Google snatched up Nest Labs for $3.2 billion in cash on Monday (Jan. 13).

Google’s move suggests that the search engine giant is serious about becoming a player in the “connected” home appliance market, but more to the point, occupying the space of the much larger Internet of Things market.

Under the deal, Google will acquire both Nest’s products and a design team that includes its co-founders, Fadell and Matt Rogers.

According to Google’s announcement, Nest will “continue to operate under the leadership of Fadell and with its own distinct brand identity.”

The idea of remotely controlling home appliances via smartphones or tables is no longer foreign to many CE vendors, and perhaps, even to consumers.

But Nest’s claim to fame is its simplicity (when consumers are setting it up), the self-learning capability of the device and the company’s flawless execution in making appliances software upgradable.

How to bring connectivity, intelligence, and ease-of-use to home appliances has been the name of the game among CE vendors for years.

At CES last week, LG showed off next-generation smart home appliances that do “HomeChat.” By tapping a Japanese messaging service called Line, LG now allows users to chat with LG’s new appliances via text messaging (in natural language).

For example, texting “I’m going on vacation” in HomeChat will result in the automatic response, “Should I convert to vacation mode?” When you reply "yes," the refrigerator will go into power-saving mode, the family’s robotic vacuum cleaner will sweep the floor at 9:00 a.m. every day, and the washing machine will run a wash cycle on the day before your return.

As the idea of “connected” smart appliances spreads, the next logical step is to improve the way those devices are connected to the cloud, figure out what data will be collected and uploaded to the Internet and what useful analytics will be fed back into those smart appliances.

In his blog at Nest, Fadell wrote: “When Matt and I started Nest in 2010, we were determined to change our homes and the world around us.”

From the beginning, Fadell said, “our vision was to create a conscious home. A home that is more thoughtful, intuitive -- and nice to look at. No one had cracked the code and we were confident we could do it with the right product, the right team, and focus.”

According to Google, the transaction of the deal is subject to customary closing conditions, including the receipt of regulatory approvals in the US. It is expected to close in the next few months.

IoT seems like the next big thing to have if you own your own home. If you rent, or plan to sell your home, de-installing or releasing all the appliances you can't take with you seems like a big pain. Across-the-internet owner validation is a whole new security challenge. But once IoT is essentially commoditized, it will be everywhere.

I agree Max. That's why you and I need to form a company to make the next big widget. How about a high tech doorbell or an electronic welcome mat. That should be worth a couple billion, don't you think?

FYI: Business Insider reports: "In this case, hackers broke into more than 100,000 everyday consumer gadgets, such as home-networking routers, connected multi-media centers, televisions, and at least one refrigerator, Proofpoint says. They then used those objects to send more than 750,000 malicious emails to enterprises and individuals worldwide."

Over-paying for something is just a sign of how much you value it. Google clearly sees Nest Labs as an opportunity to enter a completely new space. They want to open it up forceably and create an enduring legacy for themselves. This is an area that has gone fairly untouched to this point. I don't think that over-paying in this case is unreasonable--unless you by definition say that over-paying is paying an unreasonable amount.